AGENDA MEMORANDUM

 

 

Meeting Date:           December 14, 2009

 

From:                          Mike Thornton, Purchasing Manager

 

Subject:                      Review of the City’s Local Business Enterprise policy

 

 

Staff Recommendation

Revise the Local Business Enterprise percentages as shown in this table.

 

Purchase Amount

Type of Purchase

Recommended*

Current Preference

$0.01 to $9,999.99

Goods & Services

5%

5%

$10,000 to $24,999.99

Goods & Services

5%

2%

$25,000 and Up

Goods & Services

(not construction services)

Local businesses within 10% qualify to submit a ‘best and final’

Same

$25,000 to $499,999.99

Construction

10%

1%

$500,000  and Up

Construction

5%

1%

 

*Tables showing the value of the percentages for various dollar amounts are attached to the end of this memo for your reference.

 

Redefine ‘local’ to include geographic areas having businesses that would realistically re-spend their revenue in an area beneficial to Leesburg.

 

Background

The City of Leesburg has had a local vendor preference since 2004 for purchases less than $25,000.  On July 27, 2009, the Commission adopted an expanded Local Business Enterprise policy.

 

The new policy addressed purchases of all dollar amounts in addition to redefining ‘local.’  A summary of the current policy is provided here.  The full text of the policy as adopted is attached for your reference.

 

·         Local Business – Defined as any company having a storefront within the 20 mile radius with Leesburg City Hall serving as the center.

·         $0 – $9,999 – Local Businesses will receive a 5% preference

·         $10,000 - $24,999 – Local Businesses will receive a 2% preference

·         $25,000 & Up – Purchase of Goods and Services - Local Businesses submitting a bid price within 10% of a non-local vendor will have the opportunity to submit a best and final bid.  There is no preference offered to local businesses at this level.  If they are within 10% they have the opportunity to submit a best and final offer.

·         $25,000 & Up – Construction Projects – Vendors qualifying as a Local Business will receive a 1% preference.

 

The commission has indicated they wish to review the current policy and determine if the percentage amounts are appropriate.  The balance of this staff report provides information that should prove valuable in the commissioners’ consideration of this topic.

 

 

NOTE:  This agenda memo is a summary of a more detailed ‘White Paper’ prepared by staff.  The detailed version is attached for your review.  You are encouraged to review the white paper which provides a detailed description of the concepts summarized here.  The white paper also provides data to support the benefits of local spending.

 

Introduction

When it comes to establishing preference percentages there are no standard percentages that fit each situation for all municipalities.  The appropriate percentage should be based on the needs and requirements of the specific community.  Additionally, any changes in the preference percentages should be made with consideration given to maintaining the interest of vendors outside the local area and the effect of any changes on department budgets.

 

This table lists the local preferences offered by other Florida government agencies and is included here for your reference.

 

Municipality

Local Vendor Preference Percentage

City of Tallahassee

2%, 3% or 5% based upon actual cost

City of Osceola

3%

Citrus County

3% or 5% based upon actual cost

City of Tallahassee

5%

Sumter County

2%

City of Sarasota

5%

Osceola County

2%, 3%, 4%, or 5%  based upon actual cost

City of Palm Beach

5%, 7.5% or 10% based upon business classification

City of Gainesville

5%

Polk County

5%, 2%, 1% or .5% based upon actual cost

City of Ocala

5%

Source:  Marion County Board of County Commissioners Procurement Services

 

Executive Summary

Application of the ‘best value’ principle is appropriate for the support of a locale based preference.  It can be argued that purchasing goods and services from local vendors provides a better value or return to the local community.  The ‘best value’ approach would ask, “Does spending dollars locally provide more of a benefit to the citizens than purchasing goods and services from outside the area?” We believe the answer is yes.

 

The primary argument against a local vendor preference is, “Offering too much of a preference to local businesses will discourage interest from non-local businesses.”  It is important to implement a local vendor preference policy responsibly and not make decisions carelessly.

 

There have been several studies within the last 4 years on the effects of local spending.  Not all focus strictly on “The effects of local government spending in the local economy.”  From a broad based perspective,  they can be used to provide information on money flow in the local economy as a whole regardless of the revenue source.

 

In a study prepared by Civic Economics, the economic impact of a local Phoenix, AZ office product retailer is compared to the impact of a national retailer.  Civic Economics found that 33.4% of the local retailers’ revenue remained in the local economy compared to Office Max which was 11.56%. 

 

A separate study prepared by Civic Economics for Austin, TX revealed that,  . . . $45 of every $100 spent at a locally owned store stays  in the community vs. only $14 for every $100 spent at a national retailer or ‘big box’.

 

Local spending has the potential for significant impact on the local economy.  The New Economics Foundation (NEF) in the United Kingdom (UK) has completed significant research in the area of re-spending.  Their research has resulted in a report titled Public Spending for Public Benefit, How the public sector can use its purchasing power to deliver local economic development.  This report focuses on many topics related to public sector spending and the extent it can benefit the local economy.

 

NEF uses an excellent analogy of a leaky bucket to represent the effects of local spending.  The purpose of their analogy is to demonstrate the importance of businesses re-spending with other local businesses.  The local re-spending provides a greater economic impact with fewer dollars spent.  NEF presents a construction project case study that shows “. . .  it is not the quantity of money thrown at the local economy but how the money then circulates in the local economy after it is spent.”  NEF has developed an analysis tool called the Local Multiplier 3 (LM3).  This tool provides a method to calculate the effects of re-spending.

 

Even further economic benefit can be attained by combining routine budgeted spending with that required to support local social enterprises. This serves two purposes and provides enhanced economic benefit. 

 

As discussed, in order to receive the ‘best value’ from local spending the money must be re-spent locally.  The geographic boundaries established as ‘local’ must include areas that can be expected to re-spend their revenue in the Leesburg community.  The City’s current definition of local using a 20-mile radius includes areas that may not be expected to re-spend within the Leesburg community.

 

Options:

1.  Provide revisions to be made to the existing policy and brought back for adoption as

     a resolution; or

2.  Such alternative action as the Commission may deem appropriate

 

Fiscal Impact

Increases to the preference percentages may have a negative financial impact, or increase cost to the department budgets.  This would apply only if the purchase or contract were awarded to a Local Business Enterprise with the preference determining the award.  This increased cost to the department may be offset indirectly by benefiting the local economy and community.

 

Submission Date and Time:    12/10/2009 5:14 PM12/8/2009 4:19 PM____

 

Department: _Finance Department______

Prepared by:  _Mike Thornton_______                     

Attachments:         Yes__X__   No ______

Advertised:   ____Not Required __X___                     

Dates:   __________________________                     

Attorney Review :       Yes___  No ____

                                                

_________________________________           

Revised 6/10/04

 

Reviewed by: Dept. Head ___JB___

 

Finance  Dept. ____________JB____                                     

                              

Deputy C.M. ___________________                                                                         

Submitted by:

City Manager ___________________

 

Account No. ____NA___________

 

Project No. _____NA___________

 

WF No. ________NA___________

 

Budget  ________NA___________

 

Available _______NA___________

 


Percentage Reference Tables

 

This table lists the cost of a local vendor preference for the listed purchase cost amounts.  This table is for reference only and presents the amounts associated with the arbitrarily selected percentages.

 

The highlighted cells represent the recommended percentages for the purchase of goods & Services, excluding construction services more than $25,000.00.

 

 

Purchase of Goods / Services

Purchase Cost

2%
Preference
Cost

5%
Preference
Cost

10%
Preference
Cost

 $           500.00

 $          10.00

 $          25.00

 $          50.00

 $        1,000.00

 $          20.00

 $          50.00

 $        100.00

 $        2,000.00

 $          40.00

 $        100.00

 $        200.00

 $        4,000.00

 $          80.00

 $        200.00

 $        400.00

 $        5,000.00

 $        100.00

 $        250.00

 $        500.00

 $        6,000.00

 $        120.00

 $        300.00

 $        600.00

 $        7,000.00

 $        140.00

 $        350.00

 $        700.00

 $        8,000.00

 $        160.00

 $        400.00

 $        800.00

 $        9,000.00

 $        180.00

 $        450.00

 $        900.00

 $      10,000.00

 $        200.00

 $        500.00

 $     1,000.00

 $      11,000.00

 $        220.00

 $        550.00

 $     1,100.00

 $      12,000.00

 $        240.00

 $        600.00

 $     1,200.00

 $      13,000.00

 $        260.00

 $        650.00

 $     1,300.00

 $      14,000.00

 $        280.00

 $        700.00

 $     1,400.00

 $      15,000.00

 $        300.00

 $        750.00

 $     1,500.00

 $      20,000.00

 $        400.00

 $     1,000.00

 $     2,000.00

 $      25,000.00

 $        500.00

 $     1,250.00

 $     2,500.00

 $      50,000.00

 $     1,000.00

 $     2,500.00

 $     5,000.00

$       99,999.00

$      1,998.98

$      4,999.95

$      9,999.00

 $    100,000.00

 $     2,000.00

 $     5,000.00

 $   10,000.00

 $    200,000.00

 $     4,000.00

 $   10,000.00

 $   20,000.00

 $    300,000.00

 $     6,000.00

 $   15,000.00

 $   30,000.00

 $    400,000.00

 $     8,000.00

 $   20,000.00

 $   40,000.00

 $    500,000.00

 $   10,000.00

 $   25,000.00

 $   50,000.00

 $ 1,000,000.00

 $   20,000.00

 $   50,000.00

 $ 100,000.00

 $ 2,000,000.00

 $   40,000.00

 $ 100,000.00

 $ 200,000.00

 


 

This table lists the project cost in column one.  Columns 2-4 list some arbitrarily selected percentages of the project cost.  The last column reflects the 51% value of the project cost.  Should the contract be awarded to a local vendor at least 51% of the contract amount will be spent with local material suppliers or sub-contractors.

 

The highlighted cells represent the recommended percentages for construction projects.

 

Construction Projects Greater Than $25,000

Project Cost

1%
Preference
Cost

2%
Preference
Cost

5%
Preference
Cost

10%
Preference
Cost

51%
Local Spend

 $      25,000.00

 $        250.00

 $        500.00

 $     1,250.00

 $     2,500.00

 $      12,750.00

 $      30,000.00

 $        300.00

 $        600.00

 $     1,500.00

 $     3,000.00

 $      15,300.00

 $      35,000.00

 $        350.00

 $        700.00

 $     1,750.00

 $     3,500.00

 $      17,850.00

 $      40,000.00

 $        400.00

 $        800.00

 $     2,000.00

 $     4,000.00

 $      20,400.00

 $      45,000.00

 $        450.00

 $        900.00

 $     2,250.00

 $     4,500.00

 $      22,950.00

 $      50,000.00

 $        500.00

 $     1,000.00

 $     2,500.00

 $     5,000.00

 $      25,500.00

 $      55,000.00

 $        550.00

 $     1,100.00

 $     2,750.00

 $     5,500.00

 $      28,050.00

 $      60,000.00

 $        600.00

 $     1,200.00

 $     3,000.00

 $     6,000.00

 $      30,600.00

 $      65,000.00

 $        650.00

 $     1,300.00

 $     3,250.00

 $     6,500.00

 $      33,150.00

 $      70,000.00

 $        700.00

 $     1,400.00

 $     3,500.00

 $     7,000.00

 $      35,700.00

 $      75,000.00

 $        750.00

 $     1,500.00

 $     3,750.00

 $     7,500.00

 $      38,250.00

 $      80,000.00

 $        800.00

 $     1,600.00

 $     4,000.00

 $     8,000.00

 $      40,800.00

 $      85,000.00

 $        850.00

 $     1,700.00

 $     4,250.00

 $     8,500.00

 $      43,350.00

 $      90,000.00

 $        900.00

 $     1,800.00

 $     4,500.00

 $     9,000.00

 $      45,900.00

 $      95,000.00

 $        950.00

 $     1,900.00

 $     4,750.00

 $     9,500.00

 $      48,450.00

 $    100,000.00

 $     1,000.00

 $     2,000.00

 $     5,000.00

 $   10,000.00

 $      51,000.00

 $    200,000.00

 $     2,000.00

 $     4,000.00

 $   10,000.00

 $   20,000.00

 $    102,000.00

 $    300,000.00

 $     3,000.00

 $     6,000.00

 $   15,000.00

 $   30,000.00

 $    153,000.00

 $    499,999.99

$      4,999.99

 $     9,999.99

 $   24,999.99

 $   49,999.99

 $    254,999.99

 $    500,000.00

 $     5,000.00

 $   10,000.00

 $   25,000.00

 $   50,000.00

 $    255,000.00

 $    750,000.00

 $     7,500.00

 $   15,000.00

 $   37,500.00

 $   75,000.00

 $    382,500.00

 $ 1,000,000.00

 $   10,000.00

 $   20,000.00

 $   50,000.00

 $ 100,000.00

 $    510,000.00

 $ 1,500,000.00

 $   15,000.00

 $   30,000.00

 $   75,000.00

 $ 150,000.00

 $    765,000.00

 $ 2,000,000.00

 $   20,000.00

 $   40,000.00

 $ 100,000.00

 $ 200,000.00

 $ 1,020,000.00

 $ 2,500,000.00

 $   25,000.00

 $   50,000.00

 $ 125,000.00

 $ 250,000.00

 $ 1,275,000.00

 $ 3,000,000.00

 $   30,000.00

 $   60,000.00

 $ 150,000.00

 $ 300,000.00

 $ 1,530,000.00

 

Note:  Federally funded (grant projects) projects are not eligible for locale based preference.  The federal government does not permit a preference based on geographic location as part of the selection process.